The Dynamic Evolution of Industrial Clusters

Abstract

A mathematical model and its implementation are presented to analyze the evolution of industrial clusters. The static model is a combination of basic ideas of oligopoly and oligopsony theory as well as fundamental economic results describing the effects of technology development. The dynamic model is based on gradient adjustment in which each decision variable is adjusted in proportion to the corresponding partial derivative of the profit function of the firm controlling this variable. The complexity of the model makes it analytically intractable, therefore computer simulation is used. A sensitivity analysis is performed to examine how the trajectories of the main characteristics of the firms depend on model parameters, and how the entire cluster develops in time.